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Q3 EBITDA above estimates; Improving wallet share to drive outperformance

For Q3FY23, UNO Minda’s EBITDA grew by 44% YoY to Rs3.4bn, above our estimate due to higher-than-expected revenue and gross margin. Revenue grew by 34% to Rs29.2bn, above our estimates, mainly due to increased revenue in switches and others segments due to ramp-up of new orders. We have increased our FY23/FY24 EPS estimates by 6%/2%, factoring in higher revenue and margin assumptions. Following the revision, we expect FY23E revenue growth to be robust at 36%, and the uptrend is likely to endure with FY23-25E revenue CAGR at 15%, supported by growth in underlying segments and increasing wallet share. Driven by better scale and improved mix, we expect EBITDA margin to expand from 10.7% in FY22 to 11.2% in FY23E and to 12.5% in FY25E. We expect robust revenue performance ahead, underpinned by: 1) a cyclical upturn in underlying PV/2W segments; 2) higher content/vehicle in core businesses, such as switches, lightings, and acoustics; 3) improving presence in alloy wheels, sensors, and controllers; and 4) growing content/vehicle led by EV penetration. Annual order size of EV-specific components has increased by Rs3bn to Rs8.2bn. We believe UNO remains on track to increase its EV division’s revenue from

Q3 EBITDA above estimates:

Revenue grew by 34% YoY to Rs29.2bn, above estimates on account of ramp-up of new orders. Castings and Others segments witnessed strong revenue growth at 63% and 36%, respectively. Lightings/Switches/Acoustics/Seatings divisions reported revenue growth of 32%, 28%, 24%, and 11%, respectively. EBITDA grew by 44% YoY to Rs3.4bn, above our estimate due to higher-than-expected revenue and gross margin. EBITDA margin expanded by 80bps to 11.6%. Profit from associates grew by 29% to Rs250mn. Accordingly, PAT grew strongly by 60% to Rs1.6bn, above estimates. What we liked: 1) Strong revenue growth led by new orders. 2) Increase in EV-specific components’ annual order size by Rs3bn to Rs8.2bn. 3) Announcement of airbag capacity expansion supported by Rs3.5bn annual order size. 4) Attractive acquisition cost (Rs1.16bn) for Kosei’s stake (22.6%) in the 4W alloy wheel business. What we did not like: Higher gas/electricity cost impacting margins for castings and Clarton Horn divisions

Earnings Call KTAs: 1) Revenue has grown sequentially, despite lower production and price cuts (pass-through of lower costs), owing to ramp-up of new orders (such as American 2W OEM in switches and EV off-board charger) and plants (4W lighting and blow molding). 2) Revenue of the others segment grew by 20% QoQ, led by growth in aftermarket, blow molding, iSYS, sensors, controllers, EV, and lead battery. 3) New order wins in Q3 – a) Switches – Korean 4W OEM (Rs400mn annual order size) and American 2W OEM (for switch and heated handle grip), b) Seating – E-2W OEM, and c) Others – E-2W OEMs (Rs3bn annual order size) for EV-specific products (off-board charger, motor controller, BMS, and DC-DC converter) and two E-2W OEMs (Buehler JV for traction motors order). Total EVspecific annual order stands at Rs8.2bn (excluding Buehler order) and ramp-up by FY26. 5) Gross margin improved QoQ due to lower input cost. Other expenses grew QoQ due to higher gas prices, shutdown-related maintenance costs, and travel expenses. 6) Capex expansion for airbags (Rs1.75bn capex) would generate peak annual revenue of Rs3.5bn. 7) Kosei is exiting from PV alloy wheel JV due to fund requirement. Technical License Agreement (TLA) for 10 years with Kosei will ensure continued support to Minda. Licensing fees would be the same as the current royalty rate. 8) Net debt stands at Rs6.83bn as of Dec-22

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